Non-Resident Income Taxation

a. General

(1) A non-resident is liable to tax on income derived from sources within Korea.

Two methods of taxation are applied: global taxation and separate taxation.

Global taxation is applied to non-resident taxpayers who have a place of business in Korea or those with income from real estate located in Korea (excluding capital gains from the transfer of land or buildings, to which scheduler taxation is applied). All domestic source income is subject to global taxation, except for severance pay and capital gains, all of which are taxed in the same manner, with some exceptions, as they would be if earned by a resident. Withholding taxation is applied to each domestic item of income of non-residents who do not have a place of business in Korea and do not have income from real estate located in Korea.

(2) A non-resident's tax address is the domestic business place. In the case of a non-resident who has no domestic business place, its tax address will be the place where such income is derived.

b. Income from Domestic Sources

(1) Interest Income: Interest and discount on bonds or securities issued by the national government or local autonomous bodies and other profit from a trust or non-commercial loan as prescribed by the following subparagraph shall be regarded as a domestic source income. However, interest paid on funds borrowed directly by a Korean resident's permanent establishment (PE) in a foreign country or by a Korean corporation for its business outside Korea shall not be considered as domestic source income.

(a) Interest paid by the national or local government, a resident, a domestic corporation of Korea, a foreign corporation's PE in Korea, or a non-resident's PE in Korea

(b) Interest received from a foreign corporation or a non-resident, where a PE of the concerned party includes the interest paid in computing taxable income as deductible expenses related to its operation

(2) Dividend income: Distributions of profits or surplus, and advance payment of dividends under the Korean Commercial Code without surplus or cumulative earnings received from a domestic corporation or other business entity

(3) Real estate income: Income arising from the transfer of a lease, or any other interest from real estate located in Korea, including titles to the real estate, mining rights, mine lease-holding rights, or quarrying rights located in Korea, excluding income subject to capital gains tax

(4) Income from lease of vessels, aircraft, etc.: Income arising from the lease of vessels, aircraft, registered automobiles or heavy equipment to residents, domestic corporations, or the Korean places of business of non-residents and foreign corporations

(5) Business income: Income arising from performance of services in the following industries; livestock, forestry, fisheries, mining, quarrying, manufacturing, electricity/gas/water services, construction, communications, real estate dealing, services, and professional services (excluding personal service income)

(6) Personal service income: an amount receivable as payment for furnishing or having other utilized personal services such as:

(a) Services provided by actors, musicians, or other public entertainers (b) Services provided by professional athletes

(c) Services provided by lawyers, certified public accountants, licensed tax accountants, certified architects, public surveyors, patent lawyers, and others in liberal professions, and

(d) Services rendered by persons having expert knowledge or special skills in science, technology, business management, or other fields involving the utilization of such knowledge or skills.

*Actual reimbursement of airfare, accommodation fees or meal expense is excluded from personal service income.

(7) Capital gains: Gains derived from the transfer of land and buildings located in Korea

(8) Wage and salary income including pension or severance pay: The amount received as payment for labor performed in Korea

(9) Royalties, rents, or any other consideration of a similar nature receivable for the use of the following assets or technical information within Korea, or for the right to use such assets or technical information, and income arising from the transfer of said assets or technical information

(a) Copyrights on academic or artistic works (including motion pictures), patent rights, trademark rights, designs, models, drawings, secret formulae or processes, films and tapes for radio and television broadcasting, and any other similar assets or rights

(b) Industrial, commercial, or scientific knowledge, experience, or skill

(c) Industrial, commercial, or scientific machines, equipment, devices, and fixtures, and such other tools as transport equipment, etc.

(10) Gains arising from the transfer of investment securities or shares invested in a domestic corporation or other securities issued by a domestic corporation or the domestic business place of a foreign corporation

(11) Other income:

(a) Insurance money, compensation money, or compensation for damages received in connection with real estate or other assets located in Korea, or those related to businesses conducted in Korea

(b) Money, goods, or other economic benefits received as a prize from contests held in Korea

(c) Income from sale of treasure found within Korea

(d) Income from the assignment within Korea of rights established by license, permission, or other similar disposition under the Korean law, or from the transfer of property located in Korea at the time of transfer, other than real estate

(e) Money or goods received as a prize in a lottery, drawing, or any other contest, including the purse payable to the buyer of a winning ticket for horse racing, cycle racing, motorboat racing, bull fighting and sports betting game

(f) Income other than those described above, arising from a business operated in Korea or the provision of personal services in Korea; in addition, this subparagraph includes economic benefits received in connection with assets in Korea (Note that if the amount received from the redemption of bonds issued by the government or banks established under the laws of Korea in a foreign currency exceeds the face value of such bonds in foreign currency, the balance in value shall not be included under this section).

c. Domestic Business Place

(1) If a non-resident has a fixed place of business in Korea of a type described in (a) through (e) below, he or she is deemed to have a domestic place of business.

(a) A branch or any other business office (b) A store or any other fixed sales place (c) A workshop, factory, or warehouse

(d) A building site, a location of construction, assembly or installation work, or a place for providing supervision of such work, any of which exists for more than 6 months

(e) ⅰ)A place for providing services through an employee for a period exceeding 6 months in aggregate out of any 12 consecutive months, or ⅱ) a place for providing similar services for 2 years or more through an employee, if not for a period exceeding 6 months in aggregate out of any consecutive 12 months

(f) Mines, quarries or any other place of exploration or extraction of other natural resources as well as marine natural resources (including those on the sea-bed or subsoil adjacent to the coast within which the sovereign rights of the Republic of Korea may be exercised, outside its territorial waters, in accordance with the international law).

(2) The domestic places of business prescribed in the preceding paragraph do not include the following:

(a) Afixed place used by a non-resident only for the purchase of assets (b) Afixed place used by a non-resident only for storage or custody of assets

for non-business purposes

(c) Afixed place used by a non-resident for advertisement, public relations, collection or furnishing of information, market survey, or other activities of a preparatory or auxiliary nature for a business operation

(d) Afixed place used by a non-resident only for the purpose of having other persons process property of the non-resident; e.g., a foreign person might provide raw materials, title to which remains with the foreign person, into Korea to be assembled or processed into products for sale in the foreign person's home country; this activity would not give rise to a place of business in Korea

(3) If a non-resident having no fixed place in Korea carries on a business through a person in Korea who is authorized to conclude and regularly does conclude contracts on the non-resident's behalf, such non-resident is deemed to have a place of business in Korea. In addition, a non-resident having no fixed place in Korea who carries on a business in Korea through any of the following persons is also deemed to have a business place in Korea.

(a) A person who regularly takes custody of goods delivered to Korea and delivers them to customers upon receipt of orders

(b) A person who regularly takes orders, carries on consultations, or conducts other important activities specifically for such non-resident

(c) A person who collects insurance premiums or insures risks located in Korea on behalf of such non-resident

d. Tax Withholding on Non-Residents

(1) Unless otherwise provided in an applicable tax treaty, persons paying an amount of income from domestic sources to non-residents (excluding capital gains from real estate, wage & salary income or retirement income derived by non-resident individuals which are subject to the same taxation rules as those applicable to each of the three income items derived by resident individuals) not attributable to a domestic business place, shall withhold as income tax at source of the income the applicable amount enumerated below. The tax withheld must be paid to the government by the 10th day of the month following the month in which such tax was withheld.

(a) Income from lease of vessels, aircraft, etc., and business income: 2%

of the amount payable

(b) Personal service income: 20% of the amount payable^*

*Actual reimbursement of airfare, accommodation fees or meal expense is excluded from personal service income. Despite the separate taxation provisions on personal service income, the taxpayer may also elect to include income from the rendering of personal service less such amount reimbursed in domestic-source income when filing his/her income tax return in Korea.

(c) Interest income^*, dividend income, royalty, and other income: 20% of the amount payable

* Interest derived from bonds issued by the State, local authorities and domestic companies is subject to 14% of withholding tax rate.

(d) Capital gains from the transfer of land or buildings: 10% of the amount payable. However, if the purchase price of the transferred asset can be readily confirmed, the amount of tax withheld at source shall be the lesser of 10% of the amount payable or 20% of the gain on such transfer.

(e) Gains from the transfer of securities or shares: 10% of the amount payable. However, if the purchase price of the securities or shares can be readily confirmed, the amount of tax withheld at source shall be the lesser of 10% of the amount payable or 20% of the gain on such transfer.

If the securities or shares are transferred through an investment trader or investment broker under the Capital Market and Financial Investment Services Act, the trader or broker shall withhold the income tax and pay it to government at the tax office with jurisdiction over the domestic corporation (or the domestic business place of the foreign corporation) that issued the securities or shares.

In the case where the securities or shares are transferred through publicly recognized stock exchanges and the holdings of the non-resident transferor together with his specially-related persons are less than 25% of the total shares issued by or the total investment in a Korean company (the total shares or interests listed or registered on publicly recognized stock exchanges in Korea in the case of shares or interests issued by a foreign company) all the time in the year of such transfer and during the 5 years prior to the year, the capital gains from such transfer are non-taxable.

In the case where the non-resident hold securities or shares through a partnership, whether the non-resident passes the 25% shareholding test or not will be determined based on the partnership's shareholding in the domestic company concerned rather than based on the non-resident's shareholding.

(f) If a non-resident transfers securities of the same issue with different acquisition costs through a securities company, the company shall compute the acquisition value of the securities sold by using the moving average method.

(2) If a non-resident engages in a construction, installation, assembly project, or performs supervisory services related thereto on a short-term basis in Korea, the Korean resident paying for such services shall withhold income tax at source. However, if such non-resident registers its permanent establishment with the appropriate tax office, the payer will not be required to withhold and pay the tax.

(3) If a resident of Korea pays a non-resident who is engaged in the operation of vessels or aircraft in international transportation and who is not deemed to have a place of business in Korea, the resident shall withhold tax on the Korean-source portion of the amount paid.

(4) If a person subject to tax withholding fails to withhold and pay tax as required on time, a penalty equivalent to 3 ~ 10% of the amount of tax not paid shall be imposed on that person.

(5) Non-resident individuals deriving in Korea income from lease of vessels or aircraft, business income, personal service income, wage & salary income, retirement income, royalties or capital gains from securities (interest and

dividends excluded) or their withholding agent who submitted a wage and tax statement within the statutory deadline may request a reassessment of the tax base and the tax amount within 3 years from the end of the deadline.